Mar 17, 2023 - Economy

Biden to Congress: Ban execs of failed banks from the industry

President Biden at an event in Monterey Park, Calif., on Tuesday.

President Biden at an event in Monterey Park, Calif., on Tuesday. Photo: Allen J. Schaben / Los Angeles Times via Getty Images

President Biden wants Congress to enact tougher penalties for executives who oversee failed banks.

Why it matters: Silicon Valley Bank and Signature Bank were both taken over by the FDIC in the last week — events that threatened to grow into a larger-scale banking crisis.

  • The banks' downfall had to do with how they managed the risk that sat on their balance sheets — risks that sat in plain sight.

What he's saying: "I'm firmly committed to accountability for those responsible for this mess," Biden said.

  • "No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future."
  • "When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again."

Backstory: Silicon Valley Bank experienced a record bank run last week after a crisis of confidence among investors and depositors.

  • At issue: Losses in its portfolio of long-term bold holdings, which sank in value as interest rates rose rapidly.
  • The bank faced the prospect of selling these assets for less than what they paid for them, in order to fund withdrawals. It announced a $1.8 billion loss on one such sale last week.
  • Critics point out that interest-rate risk was a well-known market risk over the last few years, and say the bank should have hedged its portfolio appropriately.

Worth noting: SVB CEO Greg Becker sold $3.6 million worth of his own stock in the company in late February — an action that the Department of Justice may scrutinize.

The bottom line: Becker saw tens of millions of dollars in the value of his equity evaporate over the last year — plus, he lost his job.

  • While that might be somewhat of a deterrent for other bank executives, the law itself limits the Federal government's ability to hold banking leaders accountable, as Biden noted in his remarks.
  • "Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing," Biden said.
Go deeper